Do you want to know how much money wine shops make in profit yearly? If YES, here is an analysis of the income & profit margin wine shops make on a bottle.
If you intend running a wine shop, one of your chief worries would be if you will be able to break even in the business, and the kind of profit you will be able to make out of a bottle. You’d probably wonder if the cheaper bottles would earn you more, or if your license to the dollar lies in the more expensive bouquets. You may also wonder if consumption rate in your area would net you the required traffic.
According to the 2019 SVB Wine Industry Report, U.S. wine consumption has gone steadily up from around 370 million gallons in 1994 to just under 800 million gallons in 2018. That’s about a 116% increase in volume. In 2018, the total U.S. wine market value was $70.5 billion. 67% of that was domestic wine, and 33% imported. The overall wine industry growth rate is predicted to be between 4% to 8% in 2020 and beyond.
All these goes to show that the wine industry in the united states is healthy. But you should know that this overall health does not generally equate to the success of your business. For this reason, we would try to find out the average profit a wine seller or shop can make out of a bottle of wine, and things that can influence that profit.
How Much Profit Can a Wine Shop Make on Bottle of Wine?
When it comes to wineries, a bottle of wine that ultimately retails at $20, can be sold per case in a winery at the rate of $110. This will come to about $9.65 per bottle.
The industry standard for wine shops is to mark up a bottle of wine 200-300% over its retail sales price. Thus, if a high-end wine retails for $20 at a wine retail store, it is likely to sell for $60 to $80 at a restaurant. For rare, expensive or specialty wines, the markups could be as high as 400%.
This Pricing Strategy helps to build in the types of margins that you will likely require in order to be financially successful. It also helps to explain why most restaurant wine lists start with wines at around $30 per bottle. If you do the math – that works out to a $10 bottle of wine at retail, which is just about the lowest price you’ll find for a bottle of domestic wine in many wine shops.
The wine bottle pricing and profit margin depends on where it’s sold. Restaurants and bars have around a 70% profit margin on wine, while retailers are typically between 30–50%. Distributors and wholesalers tend have a wine profit margin of around 28–30%, and producers and vineyards will make about 50% gross margin.
For on-premise and off-premise establishments, the industry-wide markup on wine is at least 2.5 to 3 times the wholesale cost. A wine bottle bought at $10 from the distributor might sell for $20 in retail. But it can also be priced at $30 or more at a restaurant or bar.
Generally, the cheapest wines will have the highest markups and higher-end ones will have lower markups. This means that a $10 wholesale wine might be marked up to $30, but a $50 wine might be only $80.
The U.S. wine industry has a three-tier sales structure. Each tier imposes its own markups and retains a certain profit margin upon selling a wine bottle to the next tier. The system consists of the following:
The Profit Margin on a Bottle of Wine in the Value Chain
They are mostly wineries, but can sometimes be importers as well. Let’s use a winery that operates on a 50% gross margin as an example. That winery sells a case of wine for $100, which is around $8 or more per bottle. They make $50. That covers administrative costs, taxes, and profits.
As the middle person in the three-tier structure, distributors make profits by obtaining the wines from the producers. They then sell them to retailers and other buyers. Most distributors work on a 28 to 30% profit margin. But the actual number depends on the retailers’ buying power and their relationships with the producers.
At this tier, you will notice a significant increase in profit margins. While many retailers generally aim for their margins to be between 30 to 35%, the range can sometimes go up to 50%. At this tier, wine can be sold on premise and off premise.
- On-premise and Off-premise Sales
On-premise establishments are usually restaurants and bars, whereas off-premise vendors include wine shops and merchants. The industry standard for profit margins of wine at restaurants and bars is around 70%. That makes wine the most profitable item on the menu for these establishments.
In this sales cycle, there is also the option of selling directly to consumers. For wineries, this is often one of the best ways to make profits. When a consumer purchases a wine bottle directly at a winery, they typically pay the full retail price for it.
All of which go straight to the winery. However, the winery still needs to account for other expenses on that bottle, such as staffing, inventory management, and credit card processing. For wholesale suppliers, they typically sell wine directly to consumers through tasting rooms, wine clubs, and wine subscriptions.
This type of selling, however, has a suggested retail price (SRP) regulated by the state where the consumer purchases the wine. Due to the variability of in-state sales regulations and taxes, it is quite difficult to quote a profit margin for direct-to-consumer sales.